Economist, Telegraph Columnist, Broadcaster

Fall of Berlin Wall opened a world of opportunity

Sunday marks 25 years exactly since the Berlin Wall fell. Probably the most important political event of the second half of the 20th century, the collapse of that ghastly concrete and barbed wire divide across the German capital, and the broader Cold War schism it represented, is a subject close to my heart.

Normally a conscientious student, I heard a radio report from Germany in November 1989 and absconded from university. Leaving a flurry of scrawled notes for tutors, I raided my bank account and hitchhiked from the UK to Berlin. It was one of those truly life-changing moments.

Among tens of thousands of others – from scruffy students to former military men – I wielded a borrowed sledgehammer and helped smash down the wall. Those few freezing days in Berlin 25 years ago were the start of a life-long interest in the post-Communist world. During those early heady days of change, I took part in numerous discussions about what would happen next.

There was a near-universal opinion among fellow revellers on Berlin’s Alexanderplatz, to say nothing of mainstream Western commentators over the months and years that followed, that we were witnessing the ultimate triumph of capitalism and liberal democracy. This was Francis Fukuyama’s “End of History” thesis – the notion that Western economics and its associated lifestyle was the final destination of mankind’s social and political evolution.

It hasn’t quite worked out like that. Twenty-five years on, instead of an essentially bi-polar world, with two superpowers on either side of an Iron Curtain, we have something more complex. The West’s enemies are today more numerous and far harder to identify, clustered under headings ranging from “terrorists” and “separatists” to “radical Islamists”.

On this historic weekend, I have two economic observations related to the fall of the Berlin Wall. The first is that while many post-Communist states are seen here in the West as failures, and a sense of doom and missed opportunity pervades our view of the former “Eastern bloc”, I think that’s misplaced.

As the Wall came down, of course, the entire Soviet power structure – with its closed borders, economic oppression and mind-controls – started to fall with it. A welter of previously closed, moribund economies across Eastern Europe, the Former Soviet Union and Central Asia spluttered into life, enduring much hardship and uncertainty, yes, but clearly lurching forward. These 30 or so countries, their citizens often bewildered at how quickly lives and livelihoods had been upended, began rapidly to adopt free markets and open up.

Across the region, economies had been centrally-planned. Most or all private property had been illegal and little happened without the authoritarian hand of a gargantuan state. Oppression and thought-control prevailed, with prison camps housing those who dared show dissent.
Yet, during the hectic years after 1989, prices were liberalised and voucher privatisations doled out vast amounts of property – from land, to machinery and real estate. Constitutions were re-written and companies began to incorporate.

As a result, people once living under communism, in their hundreds of millions, are today able to work for themselves, get a normal job, do business, travel, consume vibrant local and foreign media and be part of the rest of the world. Their kids, the coming generation across Eastern Europe, Russia and Central Asia, having never known Communism, are in my experience exceptionally dynamic and ambitious. Now they have a chance to make a good go of their lives.

Yes – the “transition” years were confused, chaotic and, for some, deeply unfair. And, most certainly, in many countries, there’s still a very long way to go. But, on balance, it has to be good that economic and political freedoms have been extended and totalitarian nostrums smashed.

Some former Communist countries – such as Poland and the Baltic States – we now view as allies, welcoming them into the European Union and Nato. Others, not least Russia, are typically still seen as Cold War foes.
The reality is, though, that in practically all these countries, lives are now richer, happier and longer than they were during the 40 years when the Berlin Wall, and everything it represented, was in place. That shouldn’t be forgotten.

For the post-Communist world is catching up fast. In 1999, after a decade of traumatic transition, Poland’s income per head was roughly 30pc of America’s. Now, it’s 44pc. In Russia – where the economy is more market-oriented than most Westerners acknowledge – GDP per head was roughly a quarter that of America’s 15 years ago. Now it is half. Even Kazakhstan, a (relatively benign) dictatorship, has seen a rapid improvement over the same period, with per-head income growing from a fifth of that in the US to two-fifths.

These numbers are dependent on many factors – including starting point and resource endowments. But they show that while these three nations have each achieved an impressive partial “catch up”, and all off the back of free markets, they’ve used different political models to do so.
In an ideal world, of course, liberal democracy would reign supreme. But it was always naïve to think that it would – at least within the timeframe envisaged by Fukuyama. Even 25 years, in historic terms, is the blink of an eye.

Despite varying paths, we’ve still seen rapid integration with the West. Post-Communist Europe and Central Asia now sends more than half its total exports to the EU. What’s more, the average private sector share of these economies is over 70pc, with many countries we still see as “state-dominated” actually exhibiting much more competitive tax rates and far lower government spending than “capitalist” Western countries.

In sum, the fall of the Berlin Wall opened up a vast swathe of the Euro-Asian landmass, a market of almost 400 million people, many of them highly educated and ambitious, with whom we can and must do business. A quarter of a century on, despite ongoing tensions, and inevitable squabbles, we should pay more attention to that.

One country that does is Germany – which brings me to my second point. The fall of the Wall was rapidly followed by German reunification in 1990. The Soviet collapse saw the Eastern German economy implode, leading to a massively expensive rescue by its far richer Western sibling.

Today, the outlook for the eurozone’s largest economy is mixed. Germany grew just 0.5pc last year and has since stalled badly. It’s been dragged down by the broader eurozone, which contracted 0.4pc in 2013 and has barely grown since the credit crunch struck six years ago.

One thing is clear, though. Germany has made serious economic hay in the post-Communist world, and will continue to do so over the coming quarter of a century and beyond. Reunification was tough, and expensive. But re-absorbing its previously Communist Eastern half gave Germany a bridgehead into Eastern Europe, Russia and beyond – an opportunity the country’s industrialists have used to good effect.

Almost 40pc of Germany’s vast export total is now sold across the emerging markets, not least post-Communist Europe, countries that grow far faster than the West. Less than 15pc of the UK’s much smaller exported output heads for these mass markets of tomorrow. British growth is currently higher – and we like to crow about that.

But the German economy, 25 years after the Wall came down, is better positioned for the world to come.